We have got into special role vehicles like gun towers and missile carriers and have won 80% of the tenders, Amandeep Singh, Head – Defence, Ashok Leyland, tells ET Now.
Edited excerpts:
Ashok Leyland has been present in the defence space for about 30 years now, but the percentage of total business from defence does not stack up to even 10%. Why is that?
Ashok Leyland has been in logistic vehicles for the last 30 years. In last five years, this market opened up for Indian companies. We have now got into special role vehicles like gun towers and missile carriers. We have entered these programmes and we have won 80% of the tenders.
Now for Ashok Leyland, the focus of defence business has been very clear; we want to remain within our core competency area which is mobility on land. Till now, we are only into the wheeled version of this mobility on land. However, now we have started getting into mobility solutions for Indian army. Last week, we won this tender for weight optimisation of the 1500 HP transmission which will be used on main battle tanks.
Going forward, we are expanding our defence play within the Indian army capex. Five years back, we were only participating in around Rs 500-600 crore worth of business and we were market leaders in that.
Now we have expanded that to around Rs 1500 crore and are still maintaining market leadership. In next five to seven years, this is going to grow significantly. We will be touching around Rs 5,000 crore worth of defence play that we will be participating in, depending upon the projects and contracts which the government and the army are anticipating are released.
Would the pipeline that you are talking about or orders largely be concentrated on land mobility vehicles or would that be a different line?
No, as I said, we are focussed on land mobility. Earlier, it was only wheeled vehicles. Now, we are going to track vehicles also. We will keep focusing on land mobility. We are very clear on what we will do in defence and what we will not. Just because a customer is common, does not mean that we can supply him with anything and everything. We want to keep within our core competency area so that we have the technical as well as cost advantage in the various tenders that we participate in. That has been reflected in the tenders that we won and our success rate has been more than 70%.
Also, how do you see the future? FDI is not coming despite the current regime allowing 100% foreign direct investment in defence. Do you think FDI limits will be raised to 74% under the automatic route for niche technologies? Is that a space you are going to consider?
Our call on this has been that yes, FDI needs to be increased to 75% through the automatic route. Let us not call it niche areas because once you say niche area then it is very difficult to define those niche areas and very difficult to get the approvals. Now, if we want to get the FDI, we want to get the technology and we should go up to 74% through automatic route.
You have won over 70% of the tenders that you have participated in the last two years. Tell us some of the key orders that have been very important for the business and where do you see the defence order book headed going forward? What kind of order book inflow are you expecting?
A lot of these defence orders are developmental orders. Once you get these and develop a particular platform with the army or with DRDO, then the vehicle that we are supplying for carrying any missile or any gun carrying application gets integrated with that and then the future orders are going to come to us.
There are also direct tenders which we won with the Indian army. For example, we won the Smerch rocket carrier order. We have won field artillery truck, 6×6, multi barrel rocket launcher vehicles. Now, we are into 8×8. We have done with DRDO even up to 10×10 and now even 12×12 vehicles for certain strategic missiles. We are now expanding our area to beyond logistics. That will give us an enhanced play in the defence business.
What are the margins in the defence business? Are they higher than the normal margins or lower? How does the defence order typically work because there is going to be cyclicality. There could be bump-up in a quarter and another where there could be no order. How is the business looking in terms of a trajectory?
I would call defence business like a test match. You have to build your advantage session by session and since it is a single buyer, we have to wait for the contracts or orders to be generated to be given by the Indian army.
But the plans of Indian army to increase their capex and modernisation of their equipment and doing it in India, gives a clear advantage for companies as Ashok Leyland which have been with the Indian Army for so many years.
We know how to service the equipment. We have been with them through thick and thin, through various operations. We know how these vehicles are there, how these vehicles are going to operate and the Indian Army also trusts us.
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